Asian stocks shoot higher on Fed rate move

V.Phani Kumar

HONG KONG (MarketWatch) -- Several Asian indexes advanced 3% or more on Monday, including those in Japan, China and Hong Kong, recovering some prior-week losses after the Federal Reserve reduced a key interest rate.

Japanese shares jumped on strength in exporters such as Canon Inc. and Toyota Motor Corp. as the yen eased against the U.S. dollar, while financials such as Korea Exchange Bank pulled up shares in Seoul.

The rebound came in the wake of the Fed's decision Friday to cut the discount rate by half a percentage point to 5.75%, while acknowledging the precarious state of the credit markets. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from regional Federal Reserve lending facilities.

"The market has reacted positively after the Fed's move ... But the (rise) follows a very heavy sell-off last week and market sentiment is shaky because (investors are) still concerned about the subprime markets and the dollar-yen," said Ben Kwong, chief operating officer at KGI Asia in Hong Kong.

Kwong said negative news from global credit markets or an appreciation of the yen against the dollar could hurt sentiment, and said investors were likely to watch the performance of U.S. stocks on Monday for further cues.

In Tokyo, the 225-issue Nikkei Stock Average (1804610) ended 3% higher at 15,732.48, after it tumbled 874.81 points, or 5.4%, Friday to register its biggest single-day fall in seven years. The broader Topix index (1804609) finished up 2.9% at 1,523.57.

Shares of Canon (7751)
CAJ, +0.41%
soared 7.6%, Toyota (7203)
TM, -0.77%
gained 4.2% and Honda Motor Co. shares (7267)
HMC, -0.45%
added 3.5%. Shares of those companies were hurt Friday, after the yen rose to a 14-month high of 111.57 vs. the U.S. dollar in Asia before falling to 114.24 in New York the same day. On Monday, the dollar was quoted at 115.47 yen.

Regional detail

China's Shanghai Composite ended up 5.3% at 4,904.85, while Indonesia's Jakarta Composite Index (1803554), which was among the biggest losers in the past week, climbed 6.9% to 2,039.59 in afternoon trading.

In a note to its clients earlier on Monday, Citigroup said the Fed move is "highly unlikely to bring back the days of momentum" to Asian markets.

A rally of 10% to 15% from Friday's closing levels "would place these markets back in unattractive territory in terms of upside versus downside risk," said Citigroup. "We believe the investment landscape enjoyed between 2003 and July 2007 will not be repeated going forward."

Separately on Monday, the central banks of Japan and Australia reportedly injected cash into their respective local markets to ease liquidity. The Bank of Japan injected one trillion yen ($8.74 billion) via its regular operations as the overnight call rate, or the interest charged on inter-bank borrowings, stood above its policy target of 0.5%.

The Reserve Bank of Australia injected A$3.34 billion ($2.65 billion), compared to its estimate of a daily deficit of A$3.26 billion in the Australian banking system, according to wire-service reports.

Financials strong in South Korea; miners support Sydney

In Seoul, shares of Korea Exchange Bank jumped 7.7% after HSBC Holdings PLC
HBC, +0.50%
(5) said it's in talks to buy a majority stake in the South Korean bank from Dallas-based leveraged-buyout group Lone Star Funds. Shares of HSBC added 3% in Hong Kong.

Among financials, shares of RAMS Home Loans Group (RHG) climbed 18%, after they plummeted last week on its financial troubles linked to the U.S. subprime markets.

Shares of Macquarie Bank (MBL) rose 9.3%, aided by news that it has obtained commitments for a term bank facility of A$8 billion ($6.4 billion) as part of a restructuring proposal aimed at improving its international presence.

Shares of BlueScope Steel (BSL) gained 5.1% on word that its full-year net profit more than doubled.

Shares of beverages firm Coca-Cola Amatil (CCL)
CCLAY, +0.51%
added 1.3%, after the company announced it has signed an agreement to sell its South Korean business to LG Household & Health Care
LGHMF, +0.00%
Shares of LG Household gained 6.2% in Seoul.

In Hong Kong, financials and other heavyweights led the bounce back. Shares of Industrial and Commercial Bank of China (1398) jumped 9.6%, Bank of China's (3988) soared 10.9% and Ping An Insurance Co.'s (2318) advanced 8.9%, following the recent correction.

Shares of China Mobile (941) rose 8.5%, after brokerage China Everbright Research upgraded the stock to a Buy from Accumulate, on upbeat first-half earnings announced last week.

Crude oil for September delivery fell 51 cents to $71.47 a barrel Monday, after it rose 98 cents to close at $71.98 a barrel on the New York Mercantile Exchange Friday.

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